Introduction

Nowadays almost all of macroeconomic theory is based on microeconomic foundations. It is the widespread opinion that a full understanding and explanation of macroeconomic phenomena like inflation, unemployment, growth, and the business cycle require a model in which economic decision units and their interaction are described explicitly. Only models with a microeconomic foundation are immune to criticism concerning “ad hoc”— assumptions of macroeconomic relationships, and only these models allow an assessment of welfare effects of policy measures.